Married clients frequently come to my office who have accumulated a large amount of community assets and liabilities. The marriage has declined but the client may not want a divorce for a sundry of reasons. Perhaps because health insurance would not be available after a divorce, or raising children in two households is not desirable, or faith-based commitment to the marriage overshadows legal remedies available to end it. What are the options?
The Law on Partition and Exchange Agreements
Texas recognizes and presumptively affirms the validity of contracts regarding marital property. In other words, Texas law allows parties to characterize their assets and income by agreement, whether before marriage or AFTER the marriage. Many clients believe if they do not sign a “pre-nup” before they marry, it’s too late to enter agreements regarding marital property. This is not accurate. In fact, Texas law encourages parties to contract regarding their property, and our statutes put the burden on the person who opposes the enforceability of such contracts after they are properly executed.
The Texas Family Code states that, “At any time, the spouses may partition or exchange between themselves all or part of their community property, then existing or to be acquired, as the spouses may desire. Property or a property interest transferred to a spouse by a partition or exchange agreement becomes that spouse’s separate property. The partition or exchange of property may also provide that future earnings and income arising from the transferred property shall be the separate property of the owning spouse.” Thus, the proper legal name for a marital property agreement signed after the parties marry is a partition or exchange agreement.
Texas case law has held that once a property interest is transferred to a spouse pursuant to a partition or exchange agreement, it becomes that spouse’s separate property. As far as formalities are concerned, a partition or exchange agreement must be in writing and signed by both parties, and no consideration is required for it to be enforceable.
Is it Enforceable in a Subsequent Divorce?
A partition or exchange agreement is not enforceable if the person who wants to set aside the agreement proves that the agreement was not voluntarily signed by the party or the agreement was unconscionable when signed. If unconscionability is proven, the party trying to set aside the agreement must also prove that before signing the agreement, that party was not given a fair and reasonable disclosure of the property or obligations of the other party, did not waive, in writing, a right to that information and did not have, or reasonably couldn’t have had, adequate knowledge of the property or debts of the other party. In sum, the person who wants to set aside a partition and exchange agreement has a very high “burden of proof.”
When considering a post marital partition and exchange agreement the details included are very important. The more specificity regarding the assets that will be the separate property of a spouse, the better. Typically all income earned by a spouse is also converted to separate property, making all assets acquired in the future with that spouse’s income their separate property as well. The circumstances surrounding the execution are also important. To avoid a claim that one spouse did not understand what they were signing, it’s always better for EACH spouse to be represented by an attorney.
The process does not involve litigation or the Court. A judge does not sign the agreement. It can be executed in an attorney’s office or anywhere a notary is available.
What are the Advantages of having a Partition and Exchange Agreement?
As you probably know, in Texas all property or liability acquired during the marriage is community property. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property.
In the event of divorce, the judge has the authority to divide the property in a “just and right” manner, taking into account fault in the breakup of the marriage. Thus, there is financial incentive to be the “innocent” spouse. This often creates protracted litigation and cost for the parties if the marriage fails.
If you have a premarital or post marital agreement that clearly and specifically assigns property, liabilities and future income of both spouses, Courts will abide by and honor the terms of the agreement. This can greatly simplify the divorce.
Can you make a Similar Agreement on Children’s Issues or Custody?
The short answer is no, you cannot. Children’s needs are dynamic and change over time. What parents believe is in the best interest of children when the contract is signed may NOT be in the best interest of children at the subsequent time of a divorce. Enforceable and irrevocable agreements regarding children must be made during the divorce process, and generally are made during mediation. Mediated settlement agreements are enforceable.